IC Markets Asia Fundamental Forecast | 10 August 2023
What happened in the US session?
After last week’s record-breaking drawdown of 17M barrels, EIA crude oil inventories rose by 5.9M barrels versus the estimate of an increase of 2.1M barrels. Along with the surprise increase in API stockpiles earlier in the week, the latest inventory data suggests weaker demand in the US. However, crude oil prices remain elevated with WTI oil pushing towards the $84 per barrel region as Saudi Arabia’s earlier pledge to extend their output cuts till September continues to lift this commodity.
What does it mean for the Asia Session?
Crude oil prices are expected to edge higher this morning while the dollar index (DXY) hit 102.50 overnight as recent hawkish rhetoric by various FOMC members over the past week has strengthened demand for the US dollar. With US CPI due to be released later today, markets could be subdued this morning as traders await the latest inflation data with great anticipation.
The Dollar Index (DXY)
Key news events today
CPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
FOMC Member Harker Speaks (8:15 pm GMT)
What can we expect from DXY today?
Headline CPI has been falling steadily since its peak of 9.1% in June 2022 while the core reading finally showed some downward momentum for last month’s print. However, the estimate for headline CPI indicates an increase of 3.3% YoY in July versus June’s reading of 3.0%. Should both the headline and core figures print higher than their respective forecasts, a huge surge in the DXY is all but certain.
Meanwhile, unemployment claims came in higher than the forecast last week and another stronger reading would highlight that minor cracks are starting to appear in the labour market – functioning as a negative catalyst for the DXY. Whatever the outcome, it is bound to be an extremely volatile moment for markets later today.
In addition, Federal Reserve Bank of Philadelphia President Patrick Harker will be speaking about employment at an online event hosted by the Federal Reserve and could once again jawbone the US dollar with any remarks on future monetary policy actions.
Central Bank Notes:
- The federal funds rate target range will be 5.25% to 5.50%.
- The Committee is strongly committed to returning inflation to its 2.0% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting runs from 19 to 20 September 2023.
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
CPI (12:30 pm GMT)
Unemployment Claims (12:30 pm GMT)
FOMC Member Harker Speaks (8:15 pm GMT)
What can we expect from Gold today?
Headline CPI has been falling steadily since its peak of 9.1% in June 2022 while the core reading finally showed some downward momentum for last month’s print. However, the estimate for headline CPI indicates an increase of 3.3% YoY in July versus June’s reading of 3.0%. Should both the headline and core figures print higher than their respective forecasts, a huge surge in the DXY is all but certain which would result in further downward pressures mounting on gold.
Meanwhile, unemployment claims came in higher than the forecast last week and another stronger reading would highlight that minor cracks are starting to appear in the labour market – functioning as a negative catalyst for the DXY while potentially driving gold prices higher. Whatever the outcome, it is bound to be an extremely volatile moment for this precious metal later today.
In addition, Federal Reserve Bank of Philadelphia President Patrick Harker will be speaking about employment at an online event hosted by the Federal Reserve and could once again jawbone the US dollar with any remarks on future monetary policy actions.
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
MI Inflation Expectations (1:00 am GMT)
What can we expect from AUD today?
The Melbourne Institute’s inflation expectations remained unchanged at 5.2% over the past two months but August’s reading edged lower to 4.9%. Along with falling CPI readings, demand for the Aussie could wane as it potentially ranges between 0.6500 and 0.6550 today.
Central Bank Notes:
- The RBA kept the cash rate target unchanged at 4.10% for the second consecutive meeting.
- Inflation in Australia has passed its peak and is trending lower but needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 5 September 2023.
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
No major news events.
What can we expect from NZD today?
After falling to a low of 0.6035 earlier in the week, the Kiwi has rebounded from this level and is expected to range between 0.6040 and 0.6090.
Central Bank Notes:
- The Monetary Policy Committee has raised the OCR from 5.25% to 5.50%.
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the target range while supporting maximum sustainable employment.
- The Committee voted by a majority of five to two to increase the OCR by 25 basis points to 5.50%.
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment.
- Next meeting is on 16 August 2023.
Next 24 Hours Bias
Medium Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Producer Price Index (PPI), which measures wholesale inflation, has been falling steadily since the start of the year. July’s print dropped to 3.6% YoY versus the estimate of 3.5% and was also lower than the previous month’s reading of 4.1%. This ongoing decline in PPI figures allows the Bank of Japan to maintain its ultra-dovish monetary policy stance. USDJPY hit 143.90 overnight and this region could act as a near-term barrier for this pair.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2.0%.
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around +0.5%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually.
- Next meeting is on 22 September 2023.
Next 24 Hours Bias
Weak Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro failed to break above 1.1100 overnight and could make another attempt to push higher. Should both the headline and core figures in the US continue to decline on an annualized basis versus their respective forecasts, the Euro could eventually move above this level.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 14 September 2023.
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
The Swiss franc has been quite resilient despite the recent strength of the US dollar with USDCHF currently trading around 0.8770, failing to break 0.8780 for nearly a week. With demand for the US dollar waning this morning, USDCHF could potentially drift lower.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions. The GDP is projected to grow around 1.0% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Medium Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
Despite the recent strength of the US dollar, the Pound has managed to remain above 1.2700 and it could trade in a subdued fashion until US inflation data is released later today. This economic data point will be the most anticipated news release of the day and high volatility is expected.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.25 percentage points to 5.25%.
- One member preferred to maintain the Bank Rate at 5.0% while another two preferred to increase it by 0.5 percentage points.
- CPI inflation is expected to fall significantly to around 5% by the end of the year, accounted for by lower energy prices but services price inflation is projected to remain elevated in the near term.
- The updated projections show that CPI inflation is expected to decline to 2.0% and 1.9% at the two and three-year horizons respectively.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news events.
What can we expect from CAD today?
After hitting a high of 1.3500 earlier in the week, USDCAD has fallen sharply and could eventually break under 1.3400 today. ‘Softer’ inflation data out of the US later today could potentially drive this currency pair lower.
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- The Bank expects CPI inflation to ease to around 3.0% in the summer, but concerns have increased about inflation staying above the 2.0% target.
- Next meeting on 6 September 2023.
Next 24 Hours Bias
Medium Bearish
Oil
Key news events today
No major news events.
What can we expect from Oil today?
After last week’s record-breaking drawdown of 17M barrels, EIA crude oil inventories rose by 5.9M barrels versus the estimate of an increase of 2.1M barrels. Along with the surprise increase in API stockpiles earlier in the week, the latest inventory data suggests weaker demand in the US. However, crude oil prices remain elevated with WTI oil pushing towards the $84 per barrel region as Saudi Arabia’s earlier pledge to extend their output cuts till September continues to lift this commodity.
Next 24 Hours Bias
Weak Bullish
